$34 M funding on Aereo

February 04, 2014

Tags:VC

It seems unbelievable at first sight that while a company’s future is dependent on an unresolved court ruling, venture capitalist still put another $34 million in it. To better understand this deal, we need to know about Aereo and its business model. We should also analyze risk/reward profile of this funding.

What is Aereo? It’s a company founded in Feb 2012 that allows subscribers to watch live TV on a range of devices or record TV content to the cloud and watch it later.VC investors often take on high risk in order to find that one big winner whose return can compensate losses of previous ones and still make money. In the case of Aereo, venture capitalists are thinking whether this is a “Netflix for TV”, which means potentially a big winner. There are at least two major advantages Aereo has over conventional TV providers:

  1. Watch TV on your personal devices. Aereo makes it very easy to watch TV on tablets, phones or browsers. Tablets and smart phones are revolutionizing the way people consume media. Data from various sources suggest that more and more people prefer to use tablet like iPad to watch videos, which is good news for Aereo if they can attract those segment of consumers.
  2. Cheap monthly fee. For $8 dollars a month, people can enjoy all the benefits provided by Aereo, which is much cheaper than cable TV provider (normally higher than $40/month).

However, Aereo also faces some serious issues including the legal disputes mentioned in the article:

  1. Lack of deep catalog of content. Available channels are limited in Aereo because they don’t provide cable TV content.
  2. Reliable video quality. This is a problem that many videos streaming service are facing. Low video quality or slow streaming speed would undermine customer experiences, which is important for the success of the service.
  3. Scalability. Recent news about capacity shortage make one wondering is this service scalable.